Dot-Com Bust Part 2?

What did we learn from the first dot-com bust? If you look at the amount of money that is being invested in new internet companies nowadays you might conclude some investors didn’t learn their lesson.

• YouTube sold for $1.65 billion
• MySpace sold to The News Corp for $580 million
• Yahoo offered Facebook $1.6 billion but Facebook declined

Are these companies way overvalued? Is the second dot-com bust coming?

Freelance columnist and blogger John Bambenek asks, “Ready for the second dot-com bust?”

The dot-com era was characterized by fadishism, excess and a failure to deliver products that sold. Rewind to 1995: if you said the word “website” people perked up and listened. People thought the web would change everything and that no one would shop in person anymore. It was a time remarkable for an excess of enthusiasm and a deficit of common sense. It should have been obvious that people will not buy most of their food on-line, but investors spent millions trying to make exclusively on-line grocers. It didn’t work. (link)

Are we seeing the same fadishism playing out now with sites like Digg.com? It seems like a next big must have website is popping up everyday and investors are throwing money at them like they are throwing a Twinkie at Michael Moore. Mr. Bambenek see a parallel between the first dot-com bust and the possible repeat that is coming.

…the ratification of the dot-com bust came with companies that failed to deliver profits. Despite the influx of billions of dollars, most of these companies simply failed. A day of reckoning always comes. The vision of eventual profit does not counteract a series of perpetual losses. Is that day coming for Web 2.0 and Google? (link)

I think the answer is yes! Dot-com bust part 2 is coming. I’m not saying that all internet companies will fail, however I do believe that we are looking at a major shakeup that will explode the bubble of artificially inflated internet companies. The internet, just like offline business, should not be ran like a get rich quick scheme. Companies that plan to stick around must have a profitable strategy instead of an empty suit of hype.